Baghdad blurs the picture
Iraq wants the deal to work. But that may not translate into an actual drop in supply
Iraq's oil minister Jabar al-Luaibi says his country's oil production was trimmed by 160,000 barrels a day at the start of January and that the reduction would reach the required Opec level of 210,000 b/d by the end of the month. The minister reckons general compliance by Opec and non-Opec states will have an accumulative effect, saying Iraq is "hoping for a better price. We are looking at $65/b, something like that."
According to Opec, Iraq's baseline production level - against which it was to make its cuts - was 4.56m b/d, meaning that the January output figure should be 4.35m b/d. The problem, however, with the whole issue of Iraqi oil data is that it has become, to put it mildly, something of a grey area. Iraq spent much of the autumn in the run up to the deal publicly taking issue with the secondary sourcing on which Opec bases its calculations.
In late 2016, for example, Iraqi officials were insisting production was running at 4.8m b/d. But this figure appeared to include the double-counting of production from the Avana dome of the Kirkuk oilfield and Bai Hassan field - with their joint 250,000 b/d of output included in both federal and Kurdistan Regional Government (KRG) production figures. But the most recent data published by the Iraqi oil ministry showed production in October at 4.53m b/d and November at 4.55m, with a similar level expected for December - in line with secondary sourcing. To add to the confusion, since September 2016 the ministry has stopped releasing monthly composite figures and has deleted, without explanation, all the archives from its website.
The oil ministry has not explained how the 210,000-b/d production saving is to be achieved. Most likely is that the cuts will come from the
North Oil Company fields shared with the KRG and production will be reinjected into the Kirkuk field. Further reductions are likely at state-operated oilfields in the south, Luhais and Nassiriyah in particular. International oil companies operating in southern Iraq are not expected to be asked to shave production.
This combination - restricting output reductions to state-operated fields and taking account of the confusion over official reporting of production figures - means there will be no easy way of independently confirming that production has indeed been cut along the lines promised. This will be especially vexing for the market because there is unlikely to be a decline in exports from the south, as Baghdad seeks to maximise revenue. Under different circumstances, a fall in the number of barrels being shipped from southern terminals would have provided a clear indicator of production being trimmed.
Indeed, despite the Opec cuts agreed in
November, the January loading programme was up sharply by 360,000 b/d on the previous month. Again, the bald numbers are confusing, because the loading data are usually far higher than the export capacity of the south because the programme is designed to absorb cancellations and delays by nominated lifters so that tankers are always present and ready to load.
As for exports via Ceyhan, it is not clear whether or not the KRG has been asked or is willing to cut its own production. But this question will be answered when and if Erbil next publishes detailed production and, or, export figures. Again, the likelihood is that exports will remain strong, meaning that despite the cuts made to production, Iraq still ends up pumping as much oil into the global market as before the November deal.
PE verdict: Iraq's compliance will be the least easy among Opec states to confirm
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